9911796707
TMI Blog2005 (9) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income declaring a loss of Rs. 14,93,48,345 under the normal provisions and computed book profit under section 115JA and showed tax liability of Rs. 12,33,167. The return was originally processed under section 143(1). Later, a notice under section 148 of the Income-tax Act, 1961, was served on the assessee on the ground that the assessee had claimed an amount of Rs. 20,00,35,094 as extraordinary item of expenditure. The Assessing Officer, vide his order dated 5-3-2004, disallowed the following amounts:- Amount (Rs.) (i) Disallowance of CC bills payable to APSEB due to tariff change and interest and supplementary bill raised by NTPC 20,00,35,094.00 (ii) Disallowance of claim towards additional charges and Interest to APSEB 53,09,240.00 (iii) Ad hoc Disallowance of Transportation charges 3,00,000.00 Total 20,56,44,334.00 The Assessing Officer had also recomputed the book profit at Rs. 21,07,11,783 under section 115JA of the Act. Aggrieved, the assessee carried the matter in appeal. The learned CIT(A) upheld the disallowance made by the Assessing Officer on the issue of difference in tariff due to category change and interest on tariff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the amounts payable to APSEB as per the High Court order dated 15-9-2000 were provided in the accounts for the year ended 31-3-2000 which were approved by the Board on 30-10-2000." 5. APSEB changed the category of the assessee from Category I to Category III and consequent to such change in classification, raised bills on the assessee for the period April 1988 to September 1993, which amounted to Rs. 27,44,67,534. The assessee booked the tariff expenditure based on the rate applicable to Category I for the above period of April 1988 to September 1993 amounting to Rs. 23,13,36,694. This left a gap of Rs. 4,32,35,923. The assessee challenged the change of consumer status from Category I to Category III in Andhra Pradesh High Court by filing a writ petition. Hon'ble High Court delivered its judgment on the above issue on 15-9-2000, giving partial relief to the assessee. Consequent to the judgment of the High Court, the assessee provided for the difference in liability in the accounting year 1999-2000 relevant for the assessment year 2000-01. The case of the assessee is that though the financial year had ended on 31-3-2000, as the assessee had not finalized its accounts by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year 2001-02. He stated that the expenditure in question could be allowed in the year 2002-03 for the reason that APSEB had by letter dated 21-6-2001, which is at page 217 of the assessee's paper book, granted instalments facility to the assessee. This letter he submits, was a demand notice and as the final demand notice of APSEB was raised in June 2001, the expenditure in question can be allowed only in the assessment year 2002-03. 9. On the issue as to whether the amount can be allowed in the impugned assessment year, he submitted that as on 31-3-2000, the liability in question had not crystallized. He referred to page 32 of the assessee's paper book as well as to the extraordinary item disclosed in the profit and loss account and the judgment of the Hon'ble High Court, which is at pages 223 to 285 of the assessee's paper book, at 233, and vehemently contended that the entire vires of the levy was challenged by the assessee before the High Court as violative of the Constitution. He argued that when the very levy was challenged, the same could not be claimed as expenditure in the impugned assessment year as the judgment was delivered by the High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2002-03 as APSEB had finally raised demand notice in that year. The assessee con tends that this expenditure is allowable in the assessment year 2000-01. The learned counsel makes a concession stating that the assessee would not have any objection if this expenditure is allowed in the assessment year 2001-02. On a careful consideration of the facts and circumstances of the case, we are of the considered opinion that we need not go into the entire gamut of case laws relied upon by both the parties to determine the year in which the expenditure is allowable as the allow ability of the expenditure itself is not disputed by the revenue and as the assessee has made a concession in this case. 11. We first take up the revenue's case. It states that the expenditure may be allowed in the assessment year 2002-03 and bases its statement on the letter from the Chief Engineer/Comml., A.P. TRANSCO, to the assessee, dated 21-6-2001, which is at page 217 of the assessee's paper book. We have perused this letter. On a careful examination of the same, we do not find that this is a demand notice raised by AP TRANS CO for the first time on the assessee as claimed by the learned departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT [2004] 266 ITR 99, at 103. The undisputed fact is that this expenditure of the assessee is a genuine business expenditure and has to be allowed while computing the profit of this concern. While so, the ratio approved by the Hon'ble Supreme Court in the case of Berger Paints India Ltd. supports our view on this issue. 13. In view of our above finding, we dismiss these grounds of the assessee for assessment year 2000-01. 14. The next issue is computation of book profit under section 115JA of the Act. The relevant grounds of appeal are grounds 3 (a), (b) and (c) which read as follows:- "3.(a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing Rs. 20,00,35,099 representing, (i) electricity charges of Rs. 4,32,35,924 on account of difference in tariff due to category change, (ii) interest thereon of Rs. 10,08,60,680 and (iii) additional charges and interest of Rs. 5,59,38,495 on old dues payable to APSEB, while computing the book profit under section 115JA of the Act. (b) The Commissioner of Income-tax (Appeals) ought to have seen that the appellant has prepared its profit and loss account in accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that sub-section (2) of section 211 of the Companies Act requires the assessee to disclose true and fair profits. He pointed out that the expenditure in question is not a prior period item as it is neither an error nor an omission. He also stated that AS-4 is equally not applicable to the facts of the case as it refers to contingencies like events that occurred after the balance sheet date. He referred to clause 8 of AS-4 and submitted that events that occurred after the balance sheet date are required to be indicated by way of adjustments and liabilities and not by way of charge to profit and loss account. He thus submitted that neither AS-5 nor AS-4 is applicable and that the company is in error in drawing up its profit and loss account as it has not complied with Part II of Schedule VI of the Companies Act. On a query from the Bench as to whether the Assessing Officer had power to disturb the profits arrived at by the company under the Companies Act, he agreed that in view of the decisions referred to above, the adjustment in question falls within Explanation (c) of section 115JA(2). He argued that the liability in question is not an ascertained liability and thus it should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court has delivered its judgment, the liability in question crystallised. As the same ascertained liability has been provided for in the books of account by the company while preparing its accounts under the Companies Act, 1956, the same cannot be a subject-matter of adjustment under Explanation to sub-section (2) of section 115JA. It is surprising that the CIT(A) has, when he ordered allowance of the expenditure relatable to supplementary bills of NTPC in regular assessment proceedings, while considering the issue under section 115JA, disallowed the claim of the assessee. Thus, as the adjustment in question does not fall within Explanation to sub-section (2) of section 115JA, we delete the disallowance and allow the ground of the assessee. I.T.A. No. 1226/Hyd./2004 18. In this appeal, the revenue challenges the direction of the CIT(A) allowing reduction of Rs. 53,09,240 being additional charges and interest payable by the assessee to the APSEB. The learned DR fairly submitted that the learned CIT(A) had followed the order of this Bench of the Tribunal in the assessee's own case on the same issue for assessment years 1995-96 and 1996-97 and allowed the ground of appeal. We fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmal provisions of the Act on the ground that no liability had crystallised during the assessment year 2001-02. (b) The Commissioner of Income-tax (Appeals) ought to have seen that the appellant claimed the said deduction based on the demand notice dated 7-5-2001 (which is well before the date of finalisation of accounts for the year ended 31-3-2001) issued by APSEB for Rs. 10,20,43,506 and hence liability to pay the surcharge and interest on old dues arose during the assessment year 2001-02 only. Therefore there is no justification in holding that no liability had crystallised during the assessment year 2001-02. 4. (a) The Commissioner of Income-tax (Appeals) erred in law in sustaining the order of the Assessing Officer in disallowing depreciation of Rs. 7,60,62,291 on revaluation of assets while computing the book profit under section 115JB of the Act. (b) The Commissioner of Income-tax (Appeals) ought to have seen that the appellant has prepared its profit and loss account in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 taking into account the depreciation on the same method and rates which were adopted for calculating the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issibility of these additional grounds has not been strongly objected to by the learned DR, we admit the same. 20. We first consider ground Nos. 3(a) and 3(b) which pertain to disallowance of additional charges and interest payable to APSEB. The assessee had received a demand notice from the APSEB on 7-5-2001 raising a demand of Rs. 10.20 crores representing amount of additional charges and interest payable to APSEB. The assessee claimed the same as an adjustment below the line while arriving at the profit for the year ending on 31-3-2001. The assessee explained that the interest of Rs. 1,64,09,795 on old dues for earlier years was payable on CC Bills up to 31-3-2000 and that the same could not be accounted in the normal course of business because of difficulty in reckoning any interest due to complexity of billing by AP Transco. Similarly, the additional charges were stated not to have been claimed in the earlier years. The Assessing Officer disallowed the claim on the ground that the company was asked to produce relevant details of bills raised by APSEB, in respect of which the assessee claimed to have accounted for the interest as prior period expenses, but the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Rameshwar Prasad Kejriwal & Sons (P.) Ltd. [1994] 76 Taxman 124 (Cal.) CIT v. Champaran Sugar Co. Ltd. [1993] 200 ITR 258 (All.). 22. The learned departmental representative, on the other hand, supported the order of the CIT(A) and submitted that the demand notice itself was served on the assessee beyond the date of closure of accounts. He further submitted that the Assessing Officer had clearly stated that the assessee had not produced the bills and that the liability, if any, can be allowed only in the assessment year 2002-03, relevant to financial year 2001-02. At this stage, the learned counsel for the assessee stated that he has no objection if this expenditure is allowed during the assessment year 2002-03. The learned DR stated that the verification of the bills has to take place and then only the liability in question can be allowed in the case of the assessee. 23. After considering the submissions of both parties carefully, and in view of our detailed discussion on similar issue in this order in connection with the earlier assessment year, at para 12, consistent with the view taken therein, we hold that the liability in question may be allowed as expenditure for asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) of section 115JB defines book profit as net profit as shown in the profit and loss account for the relevant previous year and as increased/reduced by the various items mentioned therein. He submitted that adding back of depreciation on revaluation of assets is neither contemplated nor warranted under clauses (a) to (f) of Explanation to sub-section (2) of section 115JB. 26. The learned DR, on the other hand, vehemently contended that the procedure adopted by the assessee company for claiming this as a deduction under the Companies Act is totally wrong. He submitted that Hyderabad Bench of the Tribunal in the case of Vijay Spinning Mills Ltd v. Dy. CIT [2000] 73 ITD 344, had dealt at length with this issue and it was held therein that such a claim for depreciation on revalued portion of the assets is not an allowable expenditure under the Companies Act. He drew the attention of the Bench to clause (c) of Note 6 to annual accounts and submitted that while the assessee followed straight line method of calculation of depreciation on the original value of assets, it had written off 1/5th of the revalued assets as depreciation during the year under consideration, which in o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the company under the Companies Act. As far as the issue as to whether the profit should be reckoned below the line or above the line, is concerned, the issue has been discussed at length by this Bench of the Tribunal in the case of NCL Industries Ltd. v. Jt. CIT [2004] 88 ITD 150, wherein it has followed the order of the Bangalore Bench of the Tribunal in the case of Sipani Automobiles Ltd v. Dy. CIT [1993] 46 ITD 280. Respectfully following the ratio laid down therein, as well as applying the judgment of the Hon'ble Supreme Court in the case of Apollo Tyres Ltd., as the adjustment in question admittedly does not fall within clauses (a) to (f) of Explanation to sub-section (2) of section 115JB, the adjustment is cancelled. The grounds of appeal taken by the assessee in this regard are allowed. 29. Now we deal with the additional grounds raised by the assessee, before we go into ground Nos. 2(a) and 2(b). The additional grounds 1(a) and 1(b) deal with an issue similar to ground Nos. 2(a) and 2(b) in the appeal for assessment year 200001. For the detailed reasons given while disposing of those grounds for assessment year 2000-01, these grounds are allowed during the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of Rs. 24 per share. The capital gain was Rs. 33,56,80,000. After indexation, the long term capital gain was arrived at Rs. 31,43,80,590. The assessee claimed to have invested the amount of sale consideration in Konaseema EPS Oakwell Power Limited, an industrial undertaking, which is having infrastructure facility of generation of power and is also notified under section 10(23G) by Central Government. The assessee claimed that these long term capital gains are exempt under section 10(23G). 33. The Assessing Officer relied on the Memorandum explaining the provisions in the Finance Bill (No.2), 1996, 220 ITR (Statutes) 257, as well as Circular No. 772 dated 23-12-1998 explaining the provisions, and rejected the contentions of the assessee for the following reasons:- "(1) The provisions allowing exemption in respect of income of long term capital gains arising as sale of investments are effective from 1-4-1997. Thus it is to be clearly noted that long term capital gains arising in respect of investments made before 1-4-1997 are not eligible for exemption under section 10(23G) of the Income-tax Act. (2) At the time of introduction of the section power generation projects ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Explanation, no such interpretation can be given and that there is no merit whatsoever in the revenue's stand that only investments made between 1-4-1998 and 1-6-1998 are covered by this Explanation. On the contrary, he submitted, as the infrastructure facility had to generate power on the first day of April 1993, the investment in question could be made any time after the first day of April 1993 and such investment when sold, long term capital gain derived therefrom would be eligible for exemption under Explanation 2 to section 10(23G). He took this Bench through section 10(23G) as it existed prior to 1998 and submitted that though clause (c)(iii) of Explanation 1 to section 10(23G) was not existing at the time of purchase of the shares, in view of Explanation 2 inserted thereafter, which is applicable to the impugned assessment year, the assessee company should rightly be allowed exemption under section 10(23G). 35. The learned departmental representative, on the other hand, vehemently controverted the arguments of the learned counsel for the assessee and submitted that in 1996, when the assessee had purchased the shares, it was not eligible for exemption under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amendment) Act, 1998, clarifies that the exemption available under section 10(23G) is only in respect of investments made between 1-4-1998 and 31-5-1998 and shall continue to be governed by the provisions of section 10(23G) as it stood between 1-4-1998 and 31-3-1999. He further referred to page 3617 of the same book, paragraph 33.1, and submitted that under section 80-IA of the Act, exemptions were provided to undertakings which began to generate power during the period beginning on the 1-4-1993, and ending on the 31-3-1998. He argued that, logically, the exemption under section 10(23G) would start from 1-4-1998 only. He further referred to the following extract from the Memorandum explaining provisions in Finance (No.2) Bill 1998, 231 ITR (Statutes) 238:- "The country continues to require large investments in power. As the gestation period for such projects is long, to remove uncertainly from the minds of potential investors, the Bill propose to extend the benefit to undertakings, which commence generation, or generation and distribution of power on or before 31-3-2003. The proposed amendment will take effect from 1-4-1999, and will, accordingly, apply in relation to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain took this Bench through Explanation 2 to section 10(23G) and submitted that there is nothing in the Explanation to show that the exemption is restricted for investments which are made only after 1-4-1998 but before 1-6-1998. Even otherwise, he submitted, the exemption was sought to be given for a "long term capital gain". He argued that if an exemption for long term capital gain is contemplated for the assessment year 1999-2000, then it necessarily means that the investment should have been made prior to 1-4-1998, as the asset in question should have been held for more than 12 months, for resulting in a long term capital gain. According to the learned counsel, any other interpretation would lead to a position that the use of the term "long term capital gain" for the assessment year 1999-2000 would be meaningless. Even otherwise, he submitted, even in the Board's circular No. 772 dated 23-12-1998, it is clearly stated that as doubts had been expressed in different quarters about the continuance of exemption available under section 10(23G) in respect of investments made prior to 1-6-1998, for the assessment year 1999-2000 and onwards, the Board clarified that the exemption " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purposes of this clause,- (a) 'infrastructure capital company' means such company as has made investments by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility; (b) 'infrastructure capital fund' means such fund operating under a trust deed, registered under the provisions of the Registration Act, 1908 (16 of 1908), established to raise monies by the trustees for investment by way of acquiring shares or providing long-term finance to an enterprise carrying on the business of developing, maintaining and operating infrastructure facility; (c) 'infrastructure facility' shall have the meaning assigned to it in clause (ca) of sub-section (12) of section 80-IA;" II. Section 10(23G) was again amended by Finance Act, 1997, as follows: "(e) in clause (23G),- (i) the words, brackets, figures and letters, 'which fulfils the conditions specified in sub-section (4A) of section 80-IA' shall be omitted; (ii) in the Explanation, for clause (c), the following clause shill be substituted, namely:- (c) 'infrastructure facility' means- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be notified by the Board in this behalf in the Official Gazette and which fulfils the conditions specified in sub-section (4A) of section 80-IA; (ii) a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993; (iii) a project for providing telecommunication services on or after 1-4-1995; (iv) a project for housing which fulfils the conditions specified in sub-section (4F) of section 80-IA; (d) 'long-term finance' shall have the meaning assigned to it in clause (viii) of sub-section (1) of section 36;" IV. Finance Act, 1999, introduced the following further Explanation: "Explanation 2. - For the removal of doubts, it is hereby declared that any income by way of dividends, interest or longterm capital gains of an infrastructure capital fund or an infrastructure capital company from investments made before 1-6-1998 by way of shares or long-term finance in any enterprise carrying on the business of developing, maintaining and operating any infrastructure facility shall not be included and the provisions of this clause as it stood immediately before its amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preamble, and also the word "declared" as well as the word "enacted". But the use of the words "it is declared" it is not conclusive that the Act is declaratory for these words may, at times, be used to introduce new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is "to explain" an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended'. 42. In Keshavlal Jethalal Shah v. Mohanlal Bhagwandas this Court while interpreting section 29(2) of the amending Act, held thus: 'An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. Section 29(2) before it was enacted was precise in its implication as well as in its expression; the meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2, as introduced by Finance Act, 1999, does not permit such an interpretation. All that it says is that the investment should be made before the first day of June, 1998. Hon'ble Delhi High Court in the case of CIT v. Nestle India Ltd. 2005-TIOL-58-HC-DEL-IT, held in paragraph 10 as follows:- "10. It is settled canon of interpretation of law that wherever a provision uses plain and simple language free of ambiguity such provision should be given its plain meaning without addition or subtraction of any expression into the language of the provisions." In paragraph 11 of that judgment, it was held: "Once the time of deposit is specified in the statute itself, it will be unfair to dissect the language to give a meaning which would frustrate the very relief that is sought to be granted to an assessee by the provisions." Hon'ble Supreme Court in the case of Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821 at page 826, held as follows:- "It is settled principle in law that the courts while construing revenue Acts have to give a fair and reasonable construction to the language of a statute without leaning to one side or the other, meaning thereby that no tax or levy can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act; that would be destructive of all the known principles of law as that would really amount to giving power to a delegated authority to even amend the provision of law enacted by Parliament." 42A. Even going by the speech of the Hon'ble Finance Minister or by the Board's circular, we do not find at any place a mention that the investment in question for the purposes of claiming exemption under Explanation to section 10(23G), as introduced by the Finance Act, 1999, should have been made between 1-4-1998 and 1-6-1998. On the contrary, by Finance Act, 1997, 'infrastructure facility', to the extent relevant to this case, is defined as "a project for generation or generation and distribution of electricity or any other form of power where such project starts generating power on or after 1-4-1993". This implies that the investment should have been made prior to 1-4-1993, as, otherwise, it would never be possible for a company to generate power on 1-4-1993. It would be anomalous to hold that the generation should start on or after 1993 but the investment should be made on or after 1-4-1998. Looking at the issue from another angle, if a long-term capital gain has to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -term capital gain. 46. As section 10(23G) as it existed immediately before amendment by Finance (No.2) Act, 1998, clearly states that any income by way of long-term capital gain of an infrastructure capital fund is exempt under section 10(23G), we have no hesitation whatsoever in holding that the capital gain in question is exempt from tax under section 10(23G) as per the provisions of the statute existing in 1997 read with Explanation 2 introduced by Finance Act, 1999. Explanation 2 mandates that income by way of long-term capital gain of an infrastructure capital company from investments made before 1-6-1998, by way of shares in any enterprise which is an infrastructure facility shall not be included in the total income, i.e., it shall not form part of total income. Thus, this ground of the assessee is allowed. 47. Coming to the computation of book profits, i.e. reduction of this long- term capital gain, which is exempt under section 10(23G), from the book profits of the company under the special provisions of section 115JB, we are of the considered opinion that the revenue authorities have committed an error, as the disallowance is in violation of sub-section (2) of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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